Asia spot LNG remains bearish

17 January 2019 | Alex Froley, ICIS LNG Analyst

17 January, 2019
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The global spot LNG market remained in a bearish mood from mid-December to mid-January, as relatively mild weather in Asia this winter continued to limit demand to levels that could be comfortably met by current supply. Even a few unexpected problems at production plants in early January did little to boost the market.

The ICIS front-month East Asia Index (EAX), for cargoes to be delivered in February, was at $9.05/MMBtu in mid-December, held pretty steady over the Christmas and New Year, then slid to $8.25/MMBtu by mid-January. The EAX represents deliveries to the major LNG consumers of Japan, China, South Korea and Taiwan. The index was down 7% from the previous month, and down 21% from the same time the previous year, when the market had been in a less bearish mood.

The Northwest Europe Index (NEX) and South America Index (SAX) traced similar paths, though both markets were at a discount to the EAX. The NEX averaged $7.617/MMBtu over the four week period, some $1.210/MMBtu below the EAX average of $8.828/MMBtu. The SAX averaged $8.123/MMBtu.

At the end of December a weak oil market had left Brent crude prices at parity with the EAX, offering potential for fuel-switching from LNG to oil if LNG supply were to fall short. Oil markets strengthened coming into January, however, meaning there could be some upside on the spot LNG market now were energy demand to pick up enough to require fuel-switching to take place.

The market seemed sufficiently-well supplied for that not to be an issue, however, shrugging off the impact of some liquefaction facility outages. Russia’s Sakhalin 2 plant saw one 5.5 million tonnes per annum train shut for most of the first two weeks of January. Norway’s 4.3mtpa Hammerfest LNG plant was also out for over a week. The US Sabine Pass plant saw feedgas flows approaching 4.0 Bcf/day (113 million cubic metres/day) in late December, indicating its fifth 4.5mtpa train was in action, but flows dropped back in January, suggesting it had halted again.

Offshore Australia, Shell said that its giant floating LNG production project, the 3.6mtpa Prelude facility, had opened up its production wells, and was now entering a start-up phase, although the exact date of the first LNG cargo remained unknown.

Europe continues to attract Atlantic cargoes

With the EAX’s premium to the NEX remaining relatively small, producers with cargoes in the Atlantic Basin continued to target deliveries to Europe, rather than paying extra to ship the cargoes to the Pacific. Northwest Europe drew in lots of cargoes from sources including Russia’s Yamal LNG project, the US, Equatorial Guinea and Trinidad & Tobago, as well as more normal suppliers like Qatar. One Pacific producer, Peru, was increasingly shipping cargoes to northwest Europe too, with a number arriving in the UK and Netherlands for Shell. The new 4.5 mtpa US Corpus Christi plant, meanwhile, sent its first two cargoes to Greece and the UK on 30 December and 6 January.

At the start of the year, weather forecasters indicated that there could be a burst of unusually cold weather on the way later in the first quarter, perhaps even a return of February/March 2018’s “Beast from the East”. This was based on a signal known as “sudden stratospheric warming.” While that has the potential to boost prices in Europe, particularly if it coincides with any pipeline failures or other problems, the improved LNG availability this year means the market should be in a better position to cope than the year before.

Europe has been boosting its import facilities at some smaller import areas. Russia’s Gazprom brought the Marshal Vasilevskiy floating storage and regasification unit into position at the Russian exclave of Kaliningrad in mid-December. This will enable Kaliningrad to take in LNG from Gazprom, rather than relying on flows of pipeline gas from Russia through neighbouring countries to Kaliningrad. In southern Europe, Gibraltar is also opening a small-scale LNG import facility and power plant for the British Overseas Territory.

ABOUT THE ANALYST

Alex Froley
LNG Analyst, Global, ICIS
alex.froley@icis.com

Alex Froley follows the global LNG markets as an analyst at energy markets information provider ICIS. As well as following the latest market trends in pricing and trade flows, he is working on the development of new features for the company’s analytics platform LNG Edge.

Alex has over fifteen years’ experience in the wholesale energy markets, with a particular focus on European gas and electricity trading and the rapidly-expanding market for spot LNG. He has worked as a price reporter assessing markets including the UK NBP and Dutch TTF gas markets, the German electricity market and Asian LNG and has been responsible for real-time news, daily and fortnightly publications about the natural gas industry. He has also worked as a European gas analyst tracking supply and demand data for gas flows across Europe.

About ICIS

ICIS is the world’s largest petrochemical market information provider, with divisions spanning energy and fertilizers. Our aim is to give companies in global commodities markets a competitive advantage by delivering valuable information and analytics tools which enable our customers to identify and react to opportunities in markets which are constantly evolving. We have more than 30 years’ experience of providing pricing intelligence and news, forecast data, market analytics and independent consulting to buyers, sellers and analysts.

With a global staff of more than 600, ICIS has employees based in London, Houston, New York, Singapore, Dubai, Shanghai, Guangzhou, Beijing, Mumbai, Tokyo, Karlsruhe, and Milan. ICIS’s team of journalists is engaged in reporting market prices and news, and ICIS is fully committed to upholding the highest journalistic principles of verification, corroboration and authentication. ICIS has a compliance framework that along with its methodologies and business processes adheres to the requirements of the IOSCO PRA Principles.

ICIS is a division of Reed Business Information, part of Reed Elsevier Plc.

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